By @LOLGOP

Why Is The Senate So Kind To The Children Of The Extremely Wealthy?

January 1, 2013 3:25 pm Category: Memo Pad, Politics 51 Comments A+ / A-
Why Is The Senate So Kind To The Children Of The Extremely Wealthy?

You may have heard of the estate tax, but chances are you will never have to pay it, especially now that the Senate has set the exemption at $5 million.

That means that if you inherit an estate, likely because you were born with the right last name, you won’t have to pay taxes on any of it unless its value is over $5,000,000 — then you’ll pay 40 percent on the amount above that, about the same as the new top rate on high earners. And that $5,000,000 exemption will be adjusted for inflation yearly.

During the Clinton era, there was a $1,000,000 exemption not adjusted for inflation, with a 55 percent estate tax.

Bush and the Republican Congresses phased out that tax entirely by 2010. So what the Senate approved is an improvement on nothing. However, in a time when sacrifices are being demanded to reduce the deficit, wouldn’t the wealthy children of the uber-wealthy be a nice place to start?

The Atlantic‘s Matt O’Brien points out that the cost of Senate’s Estate Tax “compromise” is about $375 billion over the next decade, which is twice the amount that would be saved by switching to the “chained CPI” method, which would slow the growth of Social Security benefits, eventually costing the poorest seniors more than $1,000 a year in benefits.

So why is the Senate so concerned about protecting inheritances of very wealthy? It could have something to do with the fact that their average net worth was $13,989,022.98 in 2009, and is probably much higher now. They are among the less than 1 percent of America who have to even consider if their inheritance will be taxed.

The arguments against the estate tax usually begin with claiming that it’s double taxation. The “job creator” already paid taxes on that money. But the inheritor certainly hasn’t.

Influential Democratic senator Max Baucus (D-MO) fought to keep the estate tax exemption high, claiming that doing so and allowing couples to combine their exemptions to $10 million will help farmers pass their “agricultural assets” on to their children. So instead of trying to carve out a special exemption for family farms, Paris Hilton and Tagg Romney will not be asked to sacrifice, but millions of seniors will.

How can the Senate get away with this? Well, simply put, the estate tax is unpopular.

Taxing the rich is incredibly popular — almost Clinton-level popular. But when it’s been polled in the past, voters seemed to reject the estate tax. Why?

Mother Jones‘ Kevin Drum suggests, “Like it or not, I think that most people simply have an instinctive feeling that you should be able to bequeath your money to whoever you want.” He suggest that the idea of inheritances brings up a “very deep, very primitive protective instinct that most people sympathize with no matter how rich you are.”

The estate tax invokes primal urges, as does Social Security.

If you asked a group of voters with a net worth closer to the average American family’s net worth, $77,300, you could probably guess which they’d rather preserve.

Why Is The Senate So Kind To The Children Of The Extremely Wealthy? Reviewed by on . You may have heard of the estate tax, but chances are you will never have to pay it, especially now that the Senate has set the exemption at $5 million. That me You may have heard of the estate tax, but chances are you will never have to pay it, especially now that the Senate has set the exemption at $5 million. That me Rating:

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  • http://pulse.yahoo.com/_7DKWSXHQIDBW5PUAPZ2HZAYYUY Baron Cormac

    No problem is these are actual physical assets (land, buildings, vehicles). The problem I have is with non-physical assets (corporate shares).

  • nobsartist

    I think that at the end of the day, no one elected to represent us is interested in anything but padding their own wallets.

    If there is no assault weapon bill passed soon, politicians will feel it.

  • elle

    You have a family home. Maybe you’ve been there for a generation or two. Decades later, that home has gone up in value because the area has become popular for the wealthy. You are not wealthy; the home is your only major asset. With a heavy estate tax, your not wealthy children can not afford to inherit and live in their family home. They are forced to sell the home to someone who is wealthy.

    For people who live in cities where real estate is getting more and more expensive, this is not an unrealistic situation; middle-class people are being forced out of places like Manhattan because they can’t afford to keep their homes in the family. Raising the bar on the estate tax to 5 million is reasonable to protect those who have certain tangible assets in the <5M range who are not otherwise wealthy.

    • jstsyn

      Should be able to make exceptions in a case like you describe and keep the higher rate for those that can afford it. Can’t just not collect taxes.

    • lexi001

      Let’s be honest here; if one cannot afford to pay the taxes on an estate of that size, it’s pretty unlikely they are able to afford the place to begin with! Think taxes on a property of that value. I agree with the premise that the people who worked for their assets, and certainly in many instances (not all) paid their fair share of taxes shouldn’t have the assets taxed once again. But that should have a cap a lot lower than 5MM!

      • ralphkr

        Really, lexi001, you think that someone who cannot afford to pay the death tax on a $5million estate would not be able to afford to keep the place anyway. Let me give a real life example of how wrong you are. Someone I know has a business plus a ranch and the land alone is evaluated at over $5 million. Let us look at would have happened if he had died when there was a $1 cap on estates and a 55% death tax. The children would have had to immediately come up with $2.2 million or, most likely case, sell off the assets at fire sale prices.

        I remember my anger years ago when my father died (no where near a million dollar estate) and the probate lawyer got 10% and then the state and feds hit the estate. The probate lawyer would look at a CD and see $25K and charge $2,500 for his labor, charged $1,000 to evaluate their 800 square foot home at 25K and then an additional $2,500 for writing that figure down. Once the probate lawyer got done gouging my mother then it was the state and federal inheritance taxes to be paid. Fortunately I had an excellent job at the time (I was making slightly over $6,500 per year) so I could pay my mother’s taxes and she could keep her home. A few decades later my mother died and I discovered that the state had thrown out the probate laws and no longer had any death tax while the feds had no death tax on estates under $1 million.

        If you are for a death tax I am sure you would support a 25% tax on any money withdrawn by someone from his savings or checking account. After all, it is the same idea as having a death tax which is a tax on money that had been taxed when it was acquired and now is being taxed AGAIN because name of the owner is being changed so it stands to reason that if you withdraw money from your bank account (changing the holder from the bank to yourself) that there should be a tax liability.

        • Justin Napolitano

          Your parents should have had their holding in a joint ownership basis. There is no estate taxes, I believe, when there is joint ownership on one of the parties dies.

          • ralphkr

            They were in a community property state and they did have everything in joint ownership but at that time there was just a small deduction for that. Today there is no probate cost nor any death tax.

    • Canistercook

      In some areas of the U.S. using 1,000,000 would mean other members of the family would have to sell the family home and move out to pay the death taxes. That is based on a house that cost the owner who died about $60,000 in 1968. So in those areas $60,000 in 1968 had about the same purchasing power as $1,000,000+ does in 2013!

    • awakenaustin

      Net worth/wealth of $1.2 million would qualify you for the top 1% in the nation.
      Net worth/wealth of $5.5 million would qualify one for the top .1 % in the nation.
      Estate taxes may be an issue for some, but for the vast majority in this nation it is a problem they will never ever have to deal with it is a tax they will never pay.
      Only the richest 2 in 1000 estates will ever pay estate taxes. 99.87% of estates today owe no estate taxes. The top estate tax rate in 2012 was 35% the effective rate was less than 15% on those estates who paid any tax at all.
      The Urban-Brookings Tax Policy Center estimated 40 small business and farm estates nationwide would owe any estate tax in 2012. Those estates would owe 3.1% of the estate’s value in tax. These 40 estates represent .0015 per cent of all estates of people who died in 2012. Regarding the “double” taxation. Large estates consist to a large extent of unrealized capital gains that have never been taxed. So if they pay no estate tax then they have paid no tax on that income. The only way to tax that income is to tax estates.
      There is much more to say on this issue. I will close with this – estate taxes is an issue in search of a problem.

  • http://www.facebook.com/people/Daniel-Jones/827014412 Daniel Jones

    I think the hesitance to tax the estate incomes is that whoever got it likely had a relative die on them.

  • http://www.facebook.com/dominick.vila.1 Dominick Vila

    Our entire political system is designed to benefit the wealthy, often at the expense of the middle class and the poor. Raising the estate tax exemption to $5M per individual ($10M for couples) is ridiculous. I have no problem exempting the first $1M, mostly because relatively modest dwellings in cities like New York, Chicago, Los Angeles and San Francisco are easily worth that much, but why should the beneficiaries of a estate worth more than that be exempted from paying taxes on what they received?

    • http://www.facebook.com/eerlikh Mira Kuru

      Because someone had to work for them and buy them in the first place? They didn’t just magically come into existence.

      • http://www.facebook.com/dominick.vila.1 Dominick Vila

        Obviously, but do you think it is fair to ask a family struggling to make ends meet on $40K a year to pay taxes, and let someone who inherits a estate worth $4.9M pay nothing? I am not in favor of excessive estate taxes, but I believe those that benefit from the intelligence and hard work of his/her ancestors should pay their fair share when they receive a bonanza few of them did anything to earn, other than being born in the right place.

        • http://profile.yahoo.com/RFEPMKNCBVGJYV2X7LBNDGRUEY William

          People on Social Security are trying to live on a lot less than $40K, more likely $10 to $15K and yet the GOP has no problem trying to take from them, what is the matter with this country?

          • http://www.facebook.com/dominick.vila.1 Dominick Vila

            The so called chain-CPI proposal to recalculate the amount of SS increases based on inflation to counteract raising taxes on people earning over $450K by 3.6% was sickening. I can’t believe a political party that champions low taxes, loopholes and subsidies for the top 1% of earners, and proposes taking benefits away from our most vulnerable citizens remains a viable option for so many voters.

          • grammyjill

            They aren’t done trying. They are saving that for the debt ceiling talks. We’ve got about a month to convince them it’s a bad idea. If tax cuts go to $450 thousand then the income cap should match it.

          • alumahead

            Rich people run the country, both in and outside Congress.

    • http://mohammeddressup.com/ I Zheet M’Drawz

      Duhhhh…the people that originally earned the money already paid the taxes. Why should more taxes be paid on an already taxed amount?

      The gov’t did nothing to earn the money, why should they get a cut of it?

      And they’ll just give the money to weapons manufactorers when they get it.

      • http://profile.yahoo.com/UHE4MJP5FHMFIEAOGEQHETUGDQ Rvn_sgt6768

        Really? Did Mitt Romney pay any taxes on his income? He passed $100 million + to his kids so far on untaxed income. The kids pay taxes on it if and when they draw the money. Mitt’s whole fortune has been accumulated without having to pay any taxes on it. He pays now when he draws some of that money to live on like the $40 million he took these past two years and paid less than 14% on it. The common working many who pays his/her taxes as they earn their money do not have to worry about estate taxes ever again. The paltry 15% the rich would have paid for their dividend/carried interest income is a joke relative to the percentage I pay and you pay every year.

      • alumahead

        An automobile is taxed every time it is sold. If you transfer the title to your kid, you gotta pay. it’s just the way it works. 2nd hand stores? Taxed. You can’t live in a first rate country if you don’t want to pay for it. I’m all for cutting government waste, but Norquist’s pledge is destroying the country.

        There’s no free lunch. How about estate taxes on a sliding scale?

      • Justin Napolitano

        Who says that it has been taxed already. The inheritance could be real estate and other assets that have appreciated over a long time frame and were never sold so they were not taxed at the current value. All of that wealth accrued and was not realized until it was passed on. The estate tax is meant to prevent very rich families from being rich in perpetuity.
        Also, rich families usually have life insurance of an amount that can pay the estate tax when it becomes due so rarely does it cause real damage to the family.

  • jstsyn

    So, Obama is giving away the store. At our expense. Or should I rephrase that…….at America’s expense.

    • m8lsem

      You are assuming it was his idea, and not the product of Republican intransigence.

    • korhal

      I think you’ve completely confused yourself.

    • grammyjill

      Things start in the House, then move to the Senate. If it passes both then it goes to the president for signing. So, don’t just automatically blame the president.

  • m8lsem

    There is one concern that resonates in the rural parts of America, including rural parts of otherwise industrial/commercial states. It could be covered with a more specific exemption, but provides much of the ‘cannon fodder’ for the higher number.

    The family farm, especially in areas where in the orbit of suburbia, would be put out of business by a lower exemption. Here in Idaho, even we Democrats are very conscious of that problem. Farmers tend to be ‘land poor.’ It is not necessarily in the national interest to put these farms out of business by splitting them into rural estates for the mansions of richer suburbanites.

  • Canistercook

    That 5,000,000 has already been taxed once, so how many times do you want to tax it and who does it really belong to, the person that earned and saved it or the government workers! The question is why have we come to the conclusion that we have the RIGHT to take away almost half of what a person has saved for their family simply because they die. Death taxes on already taxed money is nothing more than ‘government theft’ and Communism!

  • Canistercook

    Besides this money has already been taxed once, just how many times should it be taxed. We are being taxed to death and government employees are enjoying the pay and generous pensions as a result.

    • Justin Napolitano

      Who says that it has been taxed already. The inheritance could be real estate and other assets that have appreciated over a long time frame and were never sold so they were not taxed at the current value. All of that wealth accrued and was not realized until it was passed on. The estate tax is meant to prevent very rich families from being rich in perpetuity.
      Also, rich families usually have life insurance of an amount that can pay the estate tax when it becomes due so rarely does it cause real damage to the family.

      • Canistercook

        For your information when real estate other than ones own home is sold the Federal and State taxes are based on the difference of the value you purchased it for and the price you sold it for which is the current value and also for estate tax purposes the value is based on its current market equity value at the date of ones death. Its true that some families buy insurance policies that they pay high premiums on and if they live too long they actually lose money on but sometimes that helps with the estate taxes. Trouble is there is a lot of misinformation and brain washing out there. Guess men seeking power will always look for a scapegoat and Hitler found the Jews and Obama has found the ‘Rich’. Seems like working hard and being an achiever is now a ‘sin’ to be punished in America. Truly sad.

  • Canistercook

    Price of house in San Francisco area $60,000 in 1968. Same House today $2,000,000. Death tax in 1968 on 1,000,000. The exclusion needs to be about 20,000,000 to be fair. Besides that nest egg has already been taxed once. Why have we developed the idea that we are the RIGHT to confiscate almost half of a persons savings just because they die. They saved it for their family who have a right to it.

    • Sand_Cat

      Wow, you cited the same moronic arguments listed as “excuses” in the article. Well, we now know that it was accurate. Thanks.

      • Canistercook

        Guess its ‘moronic’ under a Socialistic system to expect someone to work hard and expect to benefit their family by the results of their earnings. Guess the idle lazy are entitled to it!

    • alumahead

      So, someone who inherits $10M can’t get by on $6M? What about pulling yourself up by your boot straps and personal responsibility? Inheritance isn’t unearned income?

      • Canistercook

        They can get by on 500,000 but whose money is it mine or yours? Sounds like you think you earned half of it!

    • Justin Napolitano

      Who says that it has been taxed already. The inheritance could be real estate and other assets that have appreciated over a long time frame and were never sold so they were not taxed at the current value. All of that wealth accrued and was not realized until it was passed on. The estate tax is meant to prevent very rich families from being rich in perpetuity.
      Also, rich families usually have life insurance of an amount that can pay the estate tax when it becomes due so rarely does it cause real damage to the family.

      • Canistercook

        PS. If you never sold it you never made any money on it! That’s why you are only taxed when you sell it!

  • http://twitter.com/tannersonnenber tanner sonnenberg

    My mother paid in $40,000 in taxes when her parents died and her net worth was not even close to $1,000,000. Because the money was in an IRA and she was not a spouse, she lost most of her inheritance to the tax man.

    • Justin Napolitano

      Your mother could have taken a little at a time out of the IRA she inherited. I suspect she cashed it in and paid the high tax.

  • SchoolBoardMember

    We live in the wold’s greatest tax shelter. Only an absolute pig would bother off-shoring funds. (In my early career as a lawyer it was very different.) We do not have a spending problem, we have a tax problem. Even Reagan knew that capital gains could be taxed at the full rate as this is income that people often control to put into the year they want. In the 60′s and 70′s with a top marginal tax rate generally in the 70%’s we built the interstates. Now we can not even maintain them. Taxes need to go up across the board.

  • latebloomingrandma

    In my reading of history, I think the premise of the estate tax was to limit an American aristocracy , thus creating a permanent upper class, who inherited their fortune rather than working for it. With our founding documents declaring that all men are created equal, we were supposed to be an experiment in meritocracy. Thus, we in this country were not to bestow “titles” on people, such as “Your Lordship”, etc. Some of it has worked, but we still have an upper class it seems. The worst thing, though, was labelling an estate tax a “death tax.” Ahhhh- the government is so greedy that even when you’re dead, they tax you. That is not the point, but the rhetoric makes it one.

  • latebloomingrandma

    In my reading of history, I think the premise of the estate tax was to limit an American aristocracy , thus creating a permanent upper class, who inherited their fortune rather than working for it. With our founding documents declaring that all men are created equal, we were supposed to be an experiment in meritocracy. Thus, we in this country were not to bestow “titles” on people, such as “Your Lordship”, etc. Some of it has worked, but we still have an upper class it seems. The worst thing, though, was labelling an estate tax a “death tax.” Ahhhh- the government is so greedy that even when you’re dead, they tax you. That is not the point, but the rhetoric makes it one.

  • http://profile.yahoo.com/JMT6C3LHLJDD4RX4NB4KY5ICAE gargray

    This is why we need Obama and the democrats to step up.

  • http://www.facebook.com/eerlikh Mira Kuru

    I’m disgusted that we have an tax estates in the first place. This is robbery and nothing more.

    Especially since someone had to work for it and buy it. So when they die they lose it? That’s totally illogical, what if the child can’t afford the tax?

    Why is does the state get the right to profit of misery?

  • http://profile.yahoo.com/6LBTSHE7BLX7WCY4DNHKTIRJ4I Pgh

    Except in the case of someone who dies relatively young or unexpectedly, wealthy people’s estates should be penalized for withholding all that cash from the economy. They, like corporations with huge cash reserves but little investment in production in the US, are a plague.

  • http://twitter.com/dereksdiatribe dereksdiatribe

    Its amazing that its portrayed as a “cost” to the nation to let those who’ve earned and invested money wisely keep their money and pass it on to their family.

    There’s hundreds of billions of dollars in fraud and waste yearly in the nations budget.

    Should those who earn their own money be forced to supplement this atrocious amount of waste?

    If Congress would show that they are serious about being accountable for every dime they get from taxpayers, you’d never need another tax increase.

  • http://twitter.com/AgSqueakyWheel AgSqueakyWheel

    When you talk about the “wealthy” that you want to tax so much, do you realize the amount of farmers and ranchers that are included in that? Do you consider them the “wealthy”? The problem with the estate tax is that it includes farms, ranches, and small businesses that could not afford to operate if they had to pay massive amounts of taxes to pass on their operation to the next generation.

    If you don’t understand this, it’s explained on my blog http://www.agsqueakywheel@wordpress.com go head and read it and see if you still agree.

    People who support this need to think of where their food comes from. Do you want large corporate farming and ranching? Or would a family ran operation be better?

  • Maggie Glazer

    Estate taxes should be high. We are the United States of America not a country of royalty. If you didn’t earn it, why should you have it? It needs to go back into the economy where it belongs not in some fat cats estate for the next generation of fat cats.

  • lexi001

    I have total respect for the dilemma you describe. I will maintain that a 5MM estate is one which requires money to administer. If I inherited a 5MM estate, I can assure you I already know I cannot afford the taxes. I don’t know about your rancher friend, but I’m not the least worried someone in my family is about to leave me an estate of that size and if they did I would borrow the money to pay the estate tax and sell the darn thing for whatever is left. I am not talking about inheritance that is reasonable.

  • http://profile.yahoo.com/ALYOLBFEDHE2M65PG655WIZZHI Kevin

    Ever wonder why the only people we worry about being double taxed are the ultra wealthy? Why do we need to report a previous year’s income tax refund as income on a current year’s return? Isn’t that tax revenue that you have already overpaid? Were you not already taxed on that money in the year it was initially reported?

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